Ignorance isn't bliss when it comes to interest rates – what you should never do
Bottom Line: Financial ignorance is the norm. I'm not trying to be provocative, it's simply a matter of fact. Accredited research has shown that only 57% of adults have basic financial literacy and fewer than 40% have comprehensive financial literacy. We all have strengths and weakness and if financials will never be a strength, that's potentially ok provided that you've reached out to professionals to obtain the information you need to make sound financial decisions and for financial planning. What's not ok is simply not being informed. It's potentially extremely expensive. On that note...here's the one thing you should never do when taking out a loan... Make a decision based on how much the monthly payment will be for the loan.
As it turns out well over a quarter of people do it, including with the most expensive of all loans - their mortgage. According to BankRate.com 29% of homeowners with a mortgage didn't know their mortgage rate. This is the biggest tell that someone hasn't informed themselves well enough to know if they're making good decisions. A recent study showed that over 2 million mortgage holders would benefit by $200 or more per month by refinancing their mortgages at current rates. I found that to be a bit odd because rates are a bit higher than the average of the previous decade. This information explains it. If you were mostly concerned with the monthly mortgage payment, did you really shop around? Do you know if you got the best terms possible? When it comes to a mortgage a little means an awful lot. The average single-family home in South Florida is north of $350,000 right now.
A 1% difference in rate on a $350,000 mortgage equals $74,852 on a 30-year fixed rate mortgage. I'm pretty sure you don't want to make a $75,000 mistake or worse which is why it's so important to know your #'s. If this is you, or your kids, the bright side is you might be one of those 2+ million who'd benefit right away with a refi. Btw, this is true of all other loans too – so if you're unsure on those loans, you might find a smaller version of a similar thing.